Business owners are accustomed to having to handle issues that employees do not think of such as changes in tax laws and management plans for time away from the business. One topic that is relevant to both business owners AND employed people is estate planning but like with most things, the business owner has specific business matters to address.
The first of these is creating your business succession plan when there are multiple partners or business owners. When an employee retires, the company generally continues chugging along without him or her.
Yet, When You Own The Business, There Are Many Questions To Consider:
- Will the business be sold when you are ready to retire?
- Will a spouse or child continue running the business? If so, who will own the business?
- Do the remaining family members have the knowledge to run the business?
- If multiple partners own the business, is there a vehicle in place to value the business to be sure the retiring owner will be compensated properly when he or she leaves?
There are many things that can go awry when planning a business transfer at retirement. Often it is because of a gap in expertise, interest or family matters that send a business transfer into a tailspin. In fact, if the owner’s estate is large enough, it could trigger an estate tax and there may not be enough cash to pay the tax without a forced sale of the business.
One tool that is helpful when a business has more than one owner is a buy-sell agreement. When this is employed, a retiring owner or deceased owner’s estate will receive fair value for his or her ownership share. When preparing this kind of agreement, and one owner retires, a fair market purchase can happen by a promissory note at a reasonable rate of interest. And, should one of the owner’s pass away, life insurance policies on each owner may allow the policy proceeds to buy out the deceased owner’s share. In both cases, this agreement can allow the business to transfer fairly without liquidating the business.
Creating an estate plan to protect your assets is a more complicated matter when a business is involved than when it is not. With even more lives, property and issues at stake, it is possible it makes even more sense to prepare for your future. Find out more, call us today!